Price Elasticity of Demand

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Price elasticity of demand measures the effect of a small price change on the quantity demanded of a commodity. It is measured by dividing the % change in the quantity demanded by the % change in the price. If the result is greater than one, then demand is said to be elastic - in other words, demand is highly responsive to a change in price. If the result is less than one then demand is said to be inelastic - in other words, demand is not particularly responsive to a change in price. In general, demand for mobile phones as a whole is likely to be fairly price inelastic. This is largely because there are no particularly good substitute for mobile phones. There are other methodsof communication, such as e-mail and letter writing, but they tend to be poor substitutes.Landline phones are a potential substitute, but most people have both. Moreover, few people purchase more than one mobile phone - hence a change in price is unlikely to bring about additional or reduced demand by an individual for a mobile. At an earlier stage, when mobile phones were expensive to buy, and hence a luxury for most people, reductions in price did bring about a significant increase in demand (suggesting demand was then elastic). Nowadays, the market is saturated, and consumers tend to be more interested in the features of the phone than in its price. Moreover many companies provide the phones literally or practically free of charge. Demand for an INDIVIDUAL COMPANY's phone is, however, a different matter. Here, competition between suppliers is often intense. A distinction should be made between the manufacturers of the phones and the phone networks. Most people are not greatly interested in the identity of the former, although there is some price competition; in general, demand is fairly inelastic. The same is, however, not true of the network providers, where price competition is a

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